February 2022
Financial Planning

A credit score, also known as your “FICO” score, is a number that lenders use to help them decide how likely it is that they will be repaid on time if they give you a credit card or loan you money. Your personal credit score is built on your credit history. Your FICO® Score ranges from 300 to 850. A decent credit score is essential for your financial well-being because the higher it is, the less of a credit risk you are and the more likely you are to be able to use credit effectively to help manage your monthly cash flows. There are primarily two types of credit scores, generic scores and custom scores:

• Generic credit scores are used by many types of lenders and businesses to determine general credit risk. You can access your generic score as one score using the same formula across all three credit reporting agencies.

• Custom credit scores are developed for use by individual lenders. They rely on credit reports and other information, such as account history, from the lender's own portfolio. They are unique to the specific business, or they may be used by specific types of lenders, such as credit unions. Custom credit scores can apply to specific types of lending, such as mortgage lending or auto lending.

Understanding Credit Score Factors and Improving Your Credit Scores 
The elements from your credit report that shape your credit scores are called credit score factors.  These factors include:

• Your total debt

• Types of accounts

• Number of late payments

• Age of accounts

Factors indicate what elements of your credit history most affected the credit score at the time it was calculated. They also tell you what you must address in your credit history to become more creditworthy over time. Monitoring your credit on a regular basis can help you keep a close eye on how these factors are affecting your score and what you may be able to do to improve your score.

Why Lenders Use Credit Scores?
Before credit scores, lenders physically looked over each applicant's credit report to determine whether to grant credit. This process was time-consuming, led to mistakes or biased results, and allowed lenders to make decisions that may have had little bearing on the applicant's ability to repay debt.

• Today, credit scores help lenders assess risk more fairly.

• Credit scores are consistent and objective

They reflect only your likelihood to repay debt responsibly based on your past credit history and current credit status.

If I am concerned about identity theft, should I freeze or lock my credit?
A credit freeze may offer stronger protection than a credit lock. This means you’re not financially responsible if someone exploits your credit during the freeze. And under a federal law passed in 2018, credit bureaus are required to let you freeze and unfreeze your credit free of charge.

A credit lock is simply an agreement between you and a credit bureau to pause any new accounts in your name. Since credit locks are a voluntary feature, bureaus aren’t legally required to make good on any losses, and you may have to pay a fee.

While it’s true you can lock and unlock your credit in an instant, it doesn’t take much longer to thaw your credit. In fact, credit bureaus are required to unfreeze an account within an hour of receiving the request.

How to See My Credit Score?

Everyone can request a free copy of their credit report once a year through each of the three main credit reporting agencies.  To view your credit report, you may request this by visiting www.freecreditreport.com on the Federal Trade Commission website.  You will be required to confirm your identity – as you should be! – through a series of questions and providing personal information.

Strong credit health can be empowering and help you achieve the financial goals you’ve set. Achieving good credit health begins with knowing your credit score and where you land on the credit score spectrum, understanding what’s in your credit report, and learning what actions you can take to maintain or strengthen your credit health. Check your credit score regularly and review your credit report annually to take better control of your finances and reach your full credit potential. If you have additional questions about your credit, or want to take extra steps to secure your accounts with us, give us a call at the office!

If you have questions, please contact us.

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